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DMV projects rising merchant fees; proposes merchant‑collected service fee to reduce state expense
Summary
DMV told legislators merchant fees will grow with online transactions; the department plans to enable a processor‑collected service fee retained by the payment vendor to reduce the state's merchant fee expense, but the service fee would not appear as a state revenue line in the budget.
Bethany Musselman, administrator for the DMV Administrative Services Division, told the committee that merchant fees are the largest expense in her budget account and that transaction volume is rising as DMV shifts services online.
"DMV processes roughly 5,300,000 financial transactions. Approximately 3,900,000 of those transactions are paid with credit or debit cards," Musselman said, and the department is projecting merchant fee costs of about $11.3 million in FY26 and $11.9 million in FY27 based on current averages per card transaction.
Committee members asked about shifting those costs to customers as a service or convenience fee. Musselman explained the technical model: the merchant services provider (currently Wells Fargo) would collect the service fee on behalf of the transaction, retain that fee, and that retained service fee would not flow through DMV’s budget. "We pass our transactions through their payment gateway…that gateway would have a charge for the DMV services and then a separate charge for the service fee, that Wells Fargo will retain and not pass on to DMV," she said.
Musselman said the department has contract space and future‑state payment architecture to implement a vendor‑collected service fee and is considering whether to phase implementation as modernization progresses to avoid inconsistent customer charges across legacy and new systems. She also noted a no‑fee option (electronic check) will remain available: "We are required to provide a method of payment that does not come with an additional cost for the customer." Legislators asked the department to provide estimates showing how merchant fee reductions from service fees should be reflected at budget close and to coordinate with staff to identify phase‑in timelines.
The committee discussed consumer impacts: DMV said a quoted processor rate of 1.95% on a typical $259 vehicle registration would produce about a $5 service fee. DMV said it would not reduce its current merchant fee budget request until there is confidence on the timing and coverage of a service‑fee implementation across systems.
